Real Money

New Report Shows States Use Gimmicks When Balancing Budgets

ALEXANDRIA, Va., April 4, 2013 /PRNewswire-USNewswire/ -- Today, State Budget Solutions (SBS), a nonprofit organization advocating for fundamental reform of state budgets and pensions, released a new report "Unbalanced: Why State Balanced Budget Requirements Are Not Enough," revealing that balanced budget requirements in most states are easily manipulated and allow gimmicks to give the illusion of a balanced budget. SBS' report, which takes into account that state governments are saddled with over $4 trillion in debt, finds a flawed shared understanding of state balanced budget requirements, cites state specific examples of budget gimmicks and offers solutions for states to truthfully balance their budget.

"From coast-to-coast, states claim a balanced budget, even if a gimmick is used. It is currently understood that 49 out of 50 states are required by law to balance their budgets, but when researchers at State Budget Solutions delved into the fine print, we saw gimmick after gimmick," said Bob Williams, President of State Budget Solutions.

The report found that balanced budget requirements are riddled with holes that lead to manipulation. It describes some of the easiest ways that officials can deliberately work around their state's legal requirements; yet still declare their budgets balanced. These include shifting money between funds, toying with the fiscal calendar, issuing debt and underfunding required pension payments.

"Current balanced budget requirements are in desperate need of greater understanding," Williams continued. "In many cases, reforms must be made where the discipline of legislators is not enough to keep the budget in check."

The SBS report not only highlights shortcomings but also provides solutions to balancing state budgets including:

Review specific constitutional and statutory provisions that make up a state's balanced budget requirement system.

Publicly acknowledge gimmicks and refuse to lend credibility to the budgets that rely on them to achieve balance.

Learn how much state spending exists outside of the general fund budget, and routinely examine capital and other budgets for overspending and gimmicks.

"Lawmakers and citizens alike should not rely on the supposed existence of strong balanced budget requirements and hold leaders in check," said Williams.